According to Patel, this is to ensure that the money is utilised to strengthen public sector bank balance sheet and “not to sow the seeds for the next boom and bust cycle” of lending.
In October, government had announced a Rs 2.11-trillion capital infusion into the NPA-hit public sector banks over the next two years.
Here is a modest proposal to bring about much-needed accountability to the decisions of the RBI (and MPC): Let the RBI governor be questioned by Parliament twice a year
The panel reviewed the major global, domestic developments which could impinge on India’s financial stability.
Of the total of 22 PSU banks, as many as eight currently have gross non-performing assets (GNPA) above 15 per cent while 14 banks have GNPA of more than 12 per cent.
It bodes us well that this step (bank recapitalisation) has been taken in a time of sound macroeconomic conditions for the economy on other fronts, said Urjit Patel.
Urjit Patel welcomed the government’s decision and said that a well-capitalised banking system is a pre-requisite for stable economic growth.
Growth in gross domestic product unexpectedly slowed in the April-June quarter and economists have cut estimates for the year through March to 6.8 per cent from 7.3 per cent, the slowest pace in four years.
According to a SBI report, the RBI is likely to maintain status quo on key lending rate in Wednesday’s policy review as it is “stuck in a conundrum” of low growth, mild inflation and global uncertainties.
With the GDP growth falling to a three-year low of 5.7 per cent in the first quarter of the fiscal and retail inflation remaining in the target range, there have been demands of further lowering of the key lending or repo rate.
On the latest justifications being given by the RBI, Franco asked “what was that economics he (Governor Patel) learnt to roll out a financial policy like Demonetisation troubling the entire population?”
“Beginning with Tamil Nadu in 2016, domino effects have spread in 2017 to several states and the total cost of loan waivers amounts to around Rs 1,30,000 crore,” RBI Governor Urjit Patel said.
The government would dilute its stakes in the state-run banks to raise extra capital, suggested Urjit Patel.
India’s Monetary Policy Committee cut’s decides to cut the repo rate by 25 basis points, but, aims remain “focused on its commitment to keeping headline inflation close to 4 per cent on a durable basis”.
“Excluding the HRA impact which will affect the CPI cumulatively, inflation would be a little over 4 per cent by fourth quarter as against 4.5 per cent inclusive of the HRA in the June statement (of RBI policy),” Urjit Patel said.